Australia doesn’t have a separate self-employment tax the way some countries do — there’s no equivalent of the UK’s Class 4 National Insurance, for instance. A sole trader’s profit is simply assessable income, taxed at the same individual rates as an employee. But “the same rates” doesn’t mean “the same experience” — here’s what’s genuinely different.
Your profit is taxed like salary — with one big exception
Turnover minus allowable business expenses equals your profit, and that profit is taxed using the exact same resident brackets as an employee: 0% to $18,200, 15% to $45,000, 30% to $135,000, 37% to $190,000, and 45% above. The Low Income Tax Offset, the Medicare Levy, and HECS-HELP repayments all apply identically too.
The one genuinely structural difference: nobody pays the Superannuation Guarantee for you. An employer is legally required to contribute 12% of an employee’s ordinary time earnings into super. A sole trader has no employer — which means, mechanically, your take-home is higher on paper than an equivalent employee’s, but nothing is being set aside for retirement unless you do it yourself.
A worked example: $100,000 profit
On $100,000 profit: tax is $4,020 (15% band) plus $16,500 (30% band on the remaining $55,000) = $20,520. No LITO applies above $66,667. Medicare Levy: $2,000. Take-home profit: $77,480. Compare this to an employee on the same $100,000 salary — their take-home is nearly identical, but they’d also have roughly $12,000 landing in their super fund on top, paid by their employer. A sole trader on the same profit gets that $77,480 in cash and nothing extra unless they contribute voluntarily.
Voluntary super contributions
Many sole traders make personal deductible contributions to their own super fund to close this gap. These contributions reduce your taxable profit (same mechanism as an employee’s salary sacrifice) and are taxed at a flat 15% inside the fund rather than your marginal rate — a genuine tax saving for anyone on the 30% bracket or above, quite apart from the retirement-savings benefit. The concessional contributions cap for 2026/27 is $32,500.
PAYG instalments
Rather than tax being withheld from every payment the way PAYE works for employees, sole traders generally pay quarterly PAYG instalments — prepayments toward your end-of-year tax bill, based on your previous year’s return. This is a cash-flow timing mechanism, not a different tax rate; your actual liability is still calculated the same way at tax time.
What we haven’t covered here
GST registration, the sole trader vs. company structuring question, and superannuation strategy each deserve their own dedicated treatment — see the related articles below.
Work out your own take-home profit with our free sole trader calculator, including voluntary super contributions and HECS-HELP.